Interest Sensitive Stock

AAA

DEFINITION of 'Interest Sensitive Stock'

Any stock with a price that is extremely sensitive to changes in interest rates. Interest sensitive stocks are shares that will see large price changes relative to small movements in the risk free rate. Stocks with large betas, which gauge a stock's price movement relative to the overall market, often will be quite rate sensitive, since, as the capital asset pricing model suggests, stocks with a large beta will see bigger swings when the risk free rate moves.

INVESTOPEDIA EXPLAINS 'Interest Sensitive Stock'

Although high beta stocks tend to be quite rate sensitive, other factors contribute to a stock`s sensitivity to interest rate changes, as well. The industry in which a company operates may play a large role; home builders will usually see their share prices fall when interest rates begin to reach a certain threshold. Companies with large debt levels will also be very rate sensitive, as their cost of borrowing is contingent on the risk free rate.

RELATED TERMS
  1. Interest Rate Sensitivity

    A measure of how much the price of a fixed-income asset will ...
  2. Long-Term Debt

    Loans and financial obligations lasting over one year. Long-term ...
  3. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  4. Interest Rate Ceiling

    The maximum interest rate that a financial institution can charge ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Long-Term Liabilities

    In accounting, a section of the balance sheet that lists obligations ...
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  3. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  4. Investing Basics

    How To Prepare For Rising Interest Rates

    Get to know the basic, time-tested strategies that any investor or trader can use to profit in a rising interest rate environment.
  5. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  6. Bonds & Fixed Income

    The Impact Of Interest Rates On Real Estate Investment Trusts

    REITs are high-yield investments, but do they have an inverse relationship with interest rates? Find out here.
  7. Trading Strategies

    How can retirees protect their wealth in a bear market?

    Look at some helpful hints about how to protect your retirement nest egg when the stock market is underperforming or the economy is in recession.
  8. Fundamental Analysis

    What is the affect of the invisible hand on consumers?

    Discover how consumers help initiate and benefit from the invisible hand of the market, which naturally coordinates trade in an exchange economy.
  9. Economics

    How does the invisible hand phenomenon affect investment markets?

    Read about how the invisible hand of the market coordinates investment markets and provides social benefit and why its effects are distorted along the way.
  10. Fundamental Analysis

    What are some examples of economies of scale?

    Take a look at different examples of economies of scale, including how marginal costs can be reduced through external and internal factors.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center